TY - JOUR
T1 - Transient fads and the crash of '87
AU - Kim, Chang Jin
AU - Kim, Myung Jig
PY - 1996
Y1 - 1996
N2 - Using a fad model with Markov-switching heteroscedasticity in both the fundamental and fad components (UC-MS model), this paper examines the possibility that the 1987 stock market crash was an example of a short-lived fad. While we usually think of fads as speculative bubbles, what the UC-MS model seems to be picking up is unwarranted pessimism which the market exhibited with the OPEC oil shock and the '87 crash. Furthermore, the conditional variance implied by the UC-MS model captures most of the dynamics in the GARCH specification of stock return volatility. Yet unlike the GARCH measure of volatility, the UC-MS measure of volatility is consistent with volatility reverting to its normal level very quickly after the crash.
AB - Using a fad model with Markov-switching heteroscedasticity in both the fundamental and fad components (UC-MS model), this paper examines the possibility that the 1987 stock market crash was an example of a short-lived fad. While we usually think of fads as speculative bubbles, what the UC-MS model seems to be picking up is unwarranted pessimism which the market exhibited with the OPEC oil shock and the '87 crash. Furthermore, the conditional variance implied by the UC-MS model captures most of the dynamics in the GARCH specification of stock return volatility. Yet unlike the GARCH measure of volatility, the UC-MS measure of volatility is consistent with volatility reverting to its normal level very quickly after the crash.
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U2 - 10.1002/(SICI)1099-1255(199601)11:1<41::AID-JAE364>3.0.CO;2-R
DO - 10.1002/(SICI)1099-1255(199601)11:1<41::AID-JAE364>3.0.CO;2-R
M3 - Article
AN - SCOPUS:21344455628
SN - 0883-7252
VL - 11
SP - 41
EP - 58
JO - Journal of Applied Econometrics
JF - Journal of Applied Econometrics
IS - 1
ER -